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October 2000
Currency
Transaction Reporting and Suspicious Activity
(Editor’s Note: This article explores
how currency transaction reporting can uncover suspicious activity.
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During a routine audit of your
bank’s currency transaction reporting, you notice that it filed
nine Currency Transaction Reports in the past month on transactions
conducted by accountholder Mickey’s Bar and Grill. That is more
than twice the number of CTRs normally filed in a month by your
bank on transactions conducted by Mickey’s. In addition, you notice
that the transactions were conducted at three different branches
and on five occasions involved the use of a night deposit box.
In the past, all Mickey’s transactions have been conducted at
one branch through a teller. Should this activity be considered
suspicious?
The U.S. Suspicious Activity Reporting
regulations issued by the Treasury Department’s Financial Crimes
Enforcement Network require that "every bank" file with
Treasury "a report of any suspicious transaction relevant
to a possible violation of law or regulation." The SAR regulations
define a "suspicious transaction" as any transaction
involving $5,000 or more that is "conducted or attempted
by, at, or through the bank... and the bank knows, suspects, or
has reason to suspect that":
* "The transaction involves
funds derived from illegal activities or is intended or conducted
in order to hide or disguise funds or assets derived from illegal
activities… as part of a plan to violate or evade any federal
law or regulation or to avoid any transaction reporting requirement
under federal law or regulation"
* "The transaction is designed
to evade any requirements of this part or of any other regulations
promulgated under the Bank Secrecy Act..."
* "The transaction has no
business or apparent lawful purpose or is not the sort in which
the particular customer would normally be expected to engage,
and the bank knows of no reasonable explanation for the transaction
after examining the available facts, including the background
and possible purpose of the transaction."
In April 2000, the U.S. Comptroller
of the Currency issued Advisory Letter 2000-3, which reports on
"Common BSA Compliance Deficiencies" uncovered during
specialized anti-money laundering examinations conducted by the
OCC. The Letter says, in general, U.S. banks lack "adequate
systems and controls to ensure timely suspicious activity reporting."
The letter recommends, among other things, that banks review their
Currency Transaction Report filings to detect suspicious activity
involving cash transactions conducted by their customers.
Bank Secrecy Act regulations implemented
in 1972 require a wide range of financial institutions to file
a Currency Transaction Report, IRS Form 4789, to report "each
deposit, withdrawal, exchange of currency or other payment or
transfer, by, through, or to such financial institution which
involves a transaction in currency of more than $10,000"
(31 CFR 103.22(b)(1)). The CTR, as the form is known, provides
FinCEN with information on the amount and type of the transaction,
the person or persons who conducted the transaction, and the person
or persons who benefited from the transaction. In 1999, banks,
money services businesses, securities broker-dealers, and other
financial institutions filed more than 12 million CTRs.
Because CTRs provide law enforcement
agencies with valuable information on the movement of large amounts
of cash, money launderers will try to avoid the filing of a CTR
by breaking down, or "structuring," transactions to
less than the $10,000 CTR reporting threshold. The BSA prohibits
"structuring" and imposes civil and criminal penalties
for persons who cause or attempts to cause a financial institution
to fail to file a CTR or to file a CTR "that contains a material
omission or misstatement of fact."
The April OCC Advisory Letter says
"automated CTR systems" often allow banks to "efficiently
monitor cash activity to determine whether a single cash sum exceeding
$10,000 dollars is broken down into smaller amounts or if cash
activity is conducted in a series of transactions at or below
$10,000." Examples of suspicious activity that may be a sign
of structuring include:
* Customer comes in with another
customer and they go to different tellers to conduct currency
transactions of less than $10,000.
* Customer opens several accounts
in one or more names, then makes several cash deposits that are
less than $10,000.
* Customer deposits cash into several
accounts in amounts below $10,000 and then consolidates the funds
into one account and wire transfers them outside of the U.S.
* Customer conducts several cash
deposits below $10,000 at automated teller machines.
* Customer makes frequent purchases
of monetary instruments for cash in amounts less than $10,000.
* Customer attempts to take back
a portion of a cash deposit that exceeds $10,000 after learning
that a currency transaction report will be filed on the transaction.
The Advisory Letter also says cash
transactions "well outside the range of a customer’s normal
or expected account activity should be reviewed for the possibility
of suspicious activity." In the case of Mickey’s Bar and
Grill, the pattern of transactions does not reflect structuring
because each deposit was for more than $10,000. However, it might
represent activity that "has no business or apparent lawful
purpose or is not the sort in which the particular customer would
normally be expected to engage." If Mickey’s cannot provide
a "reasonable explanation for the transaction," then
your bank should consider filing a SAR to report the activity.
Examples of non-structuring suspicious
activity that may detected through a review of CTR filings include:
* Customer conducts unusual cash
transactions through night deposit boxes, especially large sums
that are not consistent with the customer’s business.
* Customer makes frequent deposits
or withdrawals of large amounts of currency for no apparent business
reason, or for a business that generally does not generate large
amounts of cash.
* Customer conducts several large
cash transactions at different branches on the same day, or orchestrates
persons to do so in his behalf.
* Corporate account has deposits
or withdrawals primarily in cash rather than checks.
* Customer frequently deposits
large sums of cash wrapped in currency straps stamped by other
banks.
* Customer conducts an unusual
number of foreign currency exchange transactions.
Until next month, be alert.
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